Who Qualifies for a Penalty Exemption Under the Affordable Care Act?

Health Care Pharmacy: Pharmacist Talking To Child in Shopping Cart

Are you unsure if you need to sign up for health insurance? Don’t worry, TurboTax has you covered and can help you understand who is exempt from having insurance under the Affordable Care Act.

The Affordable Care Act requires that all Americans have health insurance starting in 2014. Those who choose to not have insurance will have to pay a tax penalty unless they qualify for an exemption.

The tax penalty can also be called an “individual responsibility payment.”

The tax penalty is based on family size and income. For 2014, the fee is $95 per adult or one percent of your total yearly income depending on your income and is paid when you file your 2014 federal tax return (the one you file in 2015).

The annual fee will increase each year, and the IRS has a free online tool to determine if you’re eligible for an exemption. If you go without coverage for only part of the year, you’ll pay a partial fee; if you’re uninsured for less than three consecutive months, you won’t have to pay a fee at all.

But for some Americans who do not already have insurance through their employer, their parents, Medicaid, Medicare, TRICARE, the Veterans health care program, or individual insurance – you may be exempt.

The Affordable Care Act exemptions cover a variety of people, like followers of particular religious groups, members of Native American tribes, and people who do not meet the minimum income requirement, for which health care coverage would be considered unaffordable.

Most people must have health care coverage or pay the tax penalty, but here’s a list of specific cases where you may be able to get an exemption.

Exemptions include:

  • You’re uninsured for less than 3 consecutive months of the year
  • Your lowest-priced coverage option is more than 8% of your household income
  • You don’t have to file a tax return because your income is under the IRS filing requirement ($10,000 if single, 20,000 married filing jointly)
  • You’re a member of a federally recognized tribe or eligible for services through an Indian Health Services provider
  • You’re a member of a recognized health care sharing ministry
  • You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare
  • You’re incarcerated, and not awaiting the administering of charges against you
  • You’re not lawfully present in the United States,
  • You may qualify for the Cancellation Hardship Exemption if you received a cancellation notice due to your health plan not meeting minimum requirements.
  • You also may qualify for a hardship exemption if your circumstances affected your ability to purchase health coverage

A complete list of exemptions is available at Healthcare.gov.

How to apply for exemptions

Do you qualify for one of these conditions? If so, then what’s next?

If you’ve been uninsured for less than three consecutive months of the year, or you aren’t lawfully present in the U.S., you don’t need to apply for an exemption. This will be handled when you file your 2014 taxes next year.

Also, if you don’t have to file a tax return because your income is too low, you don’t need to apply.

You can claim certain other exemptions on your 2014 tax return when you file in 2015, such as exemptions based on coverage being unaffordable or being a member of a federally recognized tribe or ministry.

For all other exemptions, you’ll have to submit an application to the Health Insurance Marketplace along with required documentation in certain cases. Different exemptions require different forms, so be sure to apply with the correct form. You can find and print all of the forms here.